Friday, November 18, 2016

Don’t Borrow Money to Finance Infrastructure, Print It.

In Donald Trump’s victory speech after the presidential election, he vowed:

We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.

It sounds great; but as usual, the devil is in the details. Both parties in Congress agree that infrastructure is desperately needed. The roadblock is in where to find the money. Raising taxes and going further into debt are both evidently off the table. The Trump solution is touted as avoiding those options, but according to his economic advisors, it does this by privatizing public goods, imposing high user fees on the citizenry for assets that should have been public utilities.

Raise taxes, add to the federal debt, privatize – there is nothing new here. The president-elect needs another alternative; and there is one, something he is evidently open to. In May 2016, when challenged over the risk of default from the mounting federal debt, he said, “You never have to default, because you print the money.” The Federal Reserve has already created trillions of dollars for the 1% by just printing the money. The new president could create another trillion for the majority of the 99% who elected him.

Another Privatization Firesale?

The infrastructure plan of the Trump team was detailed in a report released by his economic advisors Wilbur Ross and Peter Navarro in October 2016. It calls for $1 trillion of spending over 10 years, funded largely by private sources. The authors say the report is straightforward, but this writer found it hard to follow, so here the focus will be on secondary sources. According to Jordan Weismann on Slate:

Under Trump’s plan … the federal government would offer tax credits to private investors interested in funding large infrastructure projects, who would put down some of their own money up front, then borrow the rest on the private bond markets. They would eventually earn their profits on the back end from usage fees, such as highway and bridge tolls (if they built a highway or bridge) or higher water rates (if they fixed up some water mains). So instead of paying for their new roads at tax time, Americans would pay for them during their daily commute. And of course, all these private developers would earn a nice return at the end of the day.

The federal government already offers credit programs designed to help states and cities team up with private-sector investors to finance new infrastructure. Trump’s plan is unusual because, as written, it seems to be targeted at fully private projects, which are less common.

It’s the common justification for privatization, and it’s been a disaster virtually everywhere it’s been tried. First of all, this specifically ties infrastructure—designed for the common good—to a grab for profits. Private operators will only undertake projects if they promise a revenue stream. . . .

So the only way to entice private-sector actors into rebuilding Flint, Michigan’s water system, for example, is to give them a cut of the profits in perpetuity. That’s what Chicago did when it sold off 36,000 parking meters to a Wall Street-led investor group. Users now pay exorbitant fees to park in Chicago, and city government is helpless to alter the rates.

You also end up with contractors skimping on costs to maximize profits.

Time for Some Outside-the-box Thinking

That is the plan as set forth by Trump’s economic policy advisors; but he has also talked about the very low interest rates at which the government could borrow to fund infrastructure today, so perhaps he is open to other options. Since financing is estimated to be 50% of the cost of infrastructure, funding infrastructure through a publicly-owned bank could cut costs nearly in half, as shown here.

Better yet, however, might be an option that is gaining traction in Europe: simply issue the money. Alternatively, borrow it from a central bank that issues it, which amounts to the same thing as long as the bank holds the bonds to maturity. Economists call this “helicopter money” – money issued by the central bank and dropped directly into the economy. As observed in The Economist in May 2016:

Advocates of helicopter money . . . argue for fiscal stimulus—in the form of government spending, tax cuts or direct payments to citizens—financed with newly printed money rather than through borrowing or taxation. Quantitative easing (QE) qualifies, so long as the central bank buying the government bonds promises to hold them to maturity, with interest payments and principal remitted back to the government like most central-bank profits.

Helicopter money is a new and rather pejorative term for an old and venerable solution. The American colonies asserted their independence from the Motherland by issuing their own money; and Abraham Lincoln, our first Republican president, boldly revived that system during the Civil War. To avoid locking the government into debt with exorbitant interest rates, he instructed the Treasury to print $450 million in US Notes or “greenbacks.” In 2016 dollars, that sum would be equivalent to about $10 billion, yet runaway inflation did not result. Lincoln’s greenbacks were the key to funding not only the North’s victory in the war but an array of pivotal infrastructure projects, including a transcontinental railway system; and GDP reached heights never before seen, jumping from $1 billion in 1830 to about $10 billion in 1865.

Page 2 of 2

(Page 2)

Indeed, this “radical” solution is what the Founding Fathers evidently intended for their new government. The Constitution provides, “Congress shall have the power to coin money [and] regulate the value thereof.” The Constitution was written at a time when coins were the only recognized legal tender; so the Constitutional Congress effectively gave Congress the power to create the national money supply, taking that role over from the colonies (now the states).

Outside the Civil War period, however, Congress failed to exercise its dominion over paper money, and private banks stepped in to fill the breach. First the banks printed their own banknotes, multiplied on the “fractional reserve” system. When those notes were heavily taxed, they resorted to creating money simply by writing it into deposit accounts. As the Bank of England acknowledged in its spring 2014 quarterly report, banks create deposits whenever they make loans; and this is the source of 97% of the UK money supply today. Contrary to popular belief, money is not a commodity like gold that is in fixed supply and must be borrowed before it can be lent. Money is being created and destroyed all day every day by banks across the country. By reclaiming the power to issue money, the federal government would simply be returning to the publicly-issued money of our forebears, a system they fought the British to preserve.

Countering the Inflation Myth

The invariable objection to this solution is that it would cause runaway price inflation; but that monetarist theory is flawed, for several reasons.

Further, adding money to the economy does not drive up prices until demand exceeds supply; and we’re a long way from that now. The US output gap – the difference between actual output and potential output – is estimated at close to $1 trillion today. That means the money supply could be increased by close to $1 trillion annually without driving up prices. Before that, increasing demand will trigger a corresponding increase in supply, so that both rise together and prices remain stable.

In any case, today we are in a deflationary spiral. The economy needs an injection of new money just to bring it to former levels. In July 2010, the New York Fed posted a staff report showing that the money supply had shrunk by about $3 trillion since 2008, due to the collapse of the shadow banking system. The goal of the Federal Reserve’s quantitative easing was to return inflation to target levels by increasing private sector borrowing. But rather than taking out new loans, individuals and businesses are paying off old loans, shrinking the money supply. They are doing this although credit is very cheap, because they need to rectify their debt-ridden balance sheets just to stay afloat. They are also hoarding money, taking it out of the circulating money supply. Economist Richard Koo calls it a “balance sheet recession.”

The Federal Reserve has already bought $3.6 trillion in assets simply by “printing the money” through QE. When that program was initiated, critics called it recklessly hyperinflationary; but it did not create even the modest 2% inflation the Fed was aiming for. Combined with ZIRP – zero interest rates for banks – it encouraged borrowing for speculation, driving up the stock market and real estate; but the Consumer Price Index, productivity and wages barely budged. As noted on CNBC in February:

Central banks have been pumping money into the global economy without a whole lot to show for it . . . . Growth remains anemic, and worries are escalating that the U.S. and the rest of the world are on the brink of a recession, despite bargain-basement interest rates and trillions in liquidity.

Quantitative easing, as practised by the Bank of England and the US Federal Reserve, merely flooded the financial sector with money to the benefit of bondholders. This did not create a so-called wealth affect, with a trickle-down to the real producing economy.

. . . If the EU were bold enough, it could fund infrastructure or renewables projects directly through the electronic creation of money, without having to borrow. Our government has that authority, but lacks the political will.

In 1933, President Franklin Roosevelt boldly solved the problem of a chronic shortage of gold by taking the dollar off the gold standard domestically. President-elect Trump, who is nothing if not bold, can solve the nation’s funding problems by tapping the sovereign right of government to issue money for its infrastructure needs.

In late summer when I went up to see Steve Bannon, then recently named CEO of the Donald Trump presidential campaign, in his office at Trump Tower in New York, he outlined a preposterous-sounding scenario. Trump, he said, would do surprisingly well among women, Hispanics and African-Americans, in addition to working men, and hence take Florida, Ohio, Pennsylvania and Michigan — and therefore the election. On Nov. 15, when I went back to Trump Tower, Bannon, promoted by the president-elect to chief strategist for the incoming administration, and by the media as the official symbol of all things hateful and virulent about the coming Trump presidency, said, as matter-of-factly as when he first sketched it out for me, "I told you so."===He shows up 3.5 hours late in Michigan at 1 in the morning and has 35,000 people waiting in the cold. When they got [Clinton] off the donor circuit she went to Temple University and they drew 300 or 400 kids."

Indeed, during the worst days of the campaign, even down to the last day when most in Trumpland thought only a miracle would save them, "I knew that she couldn't close. They out-spent us 10 to one, had 10 times more people and had all the media with them, but I kept saying it doesn't matter, they got it all wrong, we've got this locked."

Political analyst Pat Caddell told Breitbart News Daily on SiriusXM on Friday, “They just call everybody a racist,” referring to CNN. Caddell called the network “outrageous.”

Caddell said, “What they have not admitted is their complicity in Hillary Clinton’s campaign, or their unbelievable bias, and worse, their smearing of people, including Steve Bannon and others so that they could make some political points.”

He laid the blame on having someone from Hollywood like Jeff Zucker running the network. “I don’t think it will go very well if that continues,” said Caddell. “They need to start with, ‘Hey, we did some not very professional things during this campaign,'” he added.

It was CNN’s Donna Brazile who provided questions to Hillary Clinton’s campaign before a scheduled debate.

Caddell said, “They need to start a new, clean effort to inform the American people, not to dictate to them. This is the loss of journalism.”

Crying Wolf on Race: Top Sessions Critic Gerry Hebert Has History of Making it Up

Gerry Hebert, the leading critic of the appointment of Senator Jeff Sessions as attorney general, has a history of making things up about racial issues -- so much so, in fact, that a federal court imposed sanctions in one of Hebert's voting cases.

Reporters like Cameron Joseph at the New York Daily News (@cam_joseph) have already used quotes from Gerry Hebert, a former Justice Department lawyer, to portray Senator Sessions as a racist. Almost 30 years ago, Hebert and his allies in the Civil Rights Division of the Justice Department were responsible for sabotaging a judicial nomination for Sessions.

The reporters using Hebert as a source do not mention Hebert's history of making up stories about purported racism, yet documentation of that history is easily located in the public record. Hebert's exaggerations about racism in one federal court case resulted in sanctions being imposed by a federal judge, costing the United States taxpayer $86,626.

Grand Poobah of the Rosicrucians (when pressed): The information you are seeking amounts to secret knowledge. While I can't provide it in this forum, it is available in our 'Dark Secret Knowledge' gold premium package available at our website or any Rosicrucian Temple.

I used to see those 'retros' a lot out on the farm when I was a kid growing up. Haven't seen one in a long while. They'd come a-zooming in from due North and zippo, gone, really fast over the horizon. One time dad and I saw three come in from the north, really fast as always, triangular formation, then bingo two did a 180 and vanished back over the mountains, while the 3rd headed on towards Vegas.

According to Josephus — born Yosef Ben Mattatiyahu and at one time a commander of Jewish troops in the Galilee — he and 40 other soldiers were trapped in a cave during the Roman siege of Yodfat, in the Galilee, in 67 CE. Rather than surrender, the troops chose to commit assisted suicide, through a process in which the soldiers killed each other rather than themselves. In his account, Josephus states that he and another man remained until the end of the process, when they decided not to kill themselves and to surrender to the Romans instead.

The tale has given rise to a mathematical problem titled the “Josephus permutation,” asking, in essence, what it would take to remain the last man standing in a suicide circle.

How math may have saved an ancient Jewish historianIn YouTube video, mathematician Daniel Erman from the University of Wisconsin-Madison explains how to solve the Josephus problem. Your life could depend on itBy Times of Israel staff

Magnificent Ronald and the Founding Fathers of al Qaeda

“These gentlemen are the moral equivalents of America’s founding fathers.” — Ronald Reagan while introducing the Mujahideen leaders to media on the White house lawns (1985). During Reagan’s 8 years in power, the CIA secretly sent billions of dollars of military aid to the mujahedeen in Afghanistan in a US-supported jihad against the Soviet Union. We repeated the insanity with ISIS against Syria.